Stewart R. Massey recently wrote about the stock market, and I thought it was germain to the residential market right here in Denver. “Here on the east coast the last weeks of August and early September brought hot, humid weather. Families from the Carolinas to Maine headed to the beach to enjoy the ocean breezes and a refreshing dip in the surf. The sea looks inviting in the waning days of summer but underneath the surface lay dangerous rip currents caused by a series of hurricanes moving northward far offshore.

Markets are acting a bit like the ocean now. The tide comes in on bits of good news (“better” economic data, strong corporate earnings, encouraging policy statements) and out on discouraging news (“bad” economic data, macro concerns, the negative bias of the media). The riptide this kind of market creates is volatility. Volatility creates short‐term aversion to risk, and to equities in particular. Nobody wants to go for a swim. They are happy to stay on the beach (fixed income and cash) and wait until the danger passes.”

What does all this have to do with Residential Real Estate in Denver? Plenty! External influences and their unintended consequences:

The various tax credits over the last couple of calendar years (Basically stealing buyers from the future)

Interest rates (Rising and Falling)

Inventory (High in some neighborhoods and price ranges and down in others)

Many years ago, let’s say prior to 1970, but certainly prior to 1960, it was not uncommon to own a house for a career or lifetime and sell it for the same or less than it was purchased for a generation before. But, with competition in the mortgage market for borrowers, two income families and the greater mobility of employees, all of a sudden, the family residence took on a new profile. No longer being just shelter, in this new era, the home became an investment!

Let’s pull this all together. Shelter becomes an investment, the government insures mortgages and corporate America becomes a driving force of interstate mobility. Friction in the market was invented. It has changed over the years to some degree but the average home owner has come and gone on a 3-7 year rotation. This current market may cause some change in these numbers, but you get the idea.

Now, what are the dangers in our market in Denver with all these external influences? If interest rates rise quickly or precipitously, this will drag this market to a standstill. On the other hand, it tax credit programs resurface, the Denver market will run shortages in a relatively short time. With so many owners becoming tenants due to short sale, foreclosure and bankruptcy credit issues, a more liberal underwriting process would swamp the market with a new wave of buyers, and could steal these tenants back into home ownership. What if a change was made to retirement accounts allowing homeowners to save their homes without tax penalties, etc? Wow, would than stabilize this market or what?

Right now, corporate mobility has been significantly impacted due to market conditions. People just can’t take that job in Houston if their home in Denver can’t be sold.

Long story short, this market is healing, but even though the surface looks calm, there are dangers lurking below the surface, just out of sight. Like they used to say on “Hill Street Blues”, “Be Careful Out There”.